Editorial - May 2019

On March 28, ESMA, the European Securities and Markets Authority, updated its Questions and Answers (Q&A) document on the implementation of investor protection under MiFID II. The periodic update of the Q&As can be appreciated from different points of view. First, it provides an ongoing and flexible tool for the clarification of the application of EU rules. Moreover, it is based on a bottom up approach, whereby market operators can address specific and practical questions to the financial authority. And, more importantly, it contributes to the harmonisation of market practices. But nothing is flawless, not even regulation (and its interpretation). Let’s examine some of these Q&As and try to identify pros and cons.

Before the eventAn important part of the recent update covers the topics of information to clients on costs and charges, providing useful hints for investment firms and financial advisors. With regards to ex-ante disclosure – i.e. the information which shall be provided prior to the provision of the service or the execution of a transaction – the Q&As make it clear that generic information is not sufficient. Investment firms are thus required to provide fully individualised, transaction-based information in relation to the specific service and financial instrument (the so-called ISIN-based approach, from the name of the international code for the identification of securities). At the same time, ESMA acknowledges that, before the transaction, the exact amount of the transaction may not be known yet; in this case investment firms are allowed to disclose costs considering an assumed investment amount, provided that the calculations reflect the costs the client would actually incur on the basis of the assumed amount. This clarification has the immediate advantage of offering investment firms the possibility to easily comply with the rules on ex-ante disclosure. Nonetheless, it is also important to ensure complete information and comparability among different investment solutions: from this point of view, something is missing. For the sake of comparability, the regulator should have recommended using some specific assumed amounts (for instance, 10,000 or 100,000 euros), as already happens with the Key Information Document (KID) for packaged retail and insurance-based investment products (PRIIPs), where costs are shown assuming that a lump sum of 10,000 euros (or a regular premium of 1,000 each year) is invested.

And afterwards…Moving to ex-post disclosure, in 2017, on the occasion of a previous update of the Q&As, ESMA published an example, in the way of the table shown below, of the aggregation of costs and charges for investment services and financial instruments (in accordance with MiFID II provisions, third party payments shall be itemised separately). It is important to remember that the aggregated costs and charges shall be totalled and expressed both as a cash amount and as a percentage.

Source: ESMA Q&A

Also, in this case, the solution envisaged by ESMA contributes to clarity and harmonisation, but something important is still missing if we consider that the table presented in the Q&A does not specify the basis for the calculation. Shall the percentages be applied to the average invested amount over the year? This could be the case but, in the absence of specific guidance, different investment firms may apply different bases and methodologies for cost calculation. Again, it is difficult to strike an effective balance between harmonisation and comparability, on the one hand, and proportionality and organisational autonomy, on the other.

In addition, the investment firm shall provide an itemised breakdown at the request of the client and should also take reasonable steps to minimise the effort for the client to submit such requests. In accordance with MiFID II provisions, the cost items shall specify one-off and ongoing charges, all transaction costs, charges related to ancillary services and performance fees. The Q&As explicitly allow investment firms to add their own “commercial” terminology, but commercial terms should be clearly defined with reference to the MiFID II official terminology. The same reasoning explained above applies: where is the equilibrium between regulatory compliance and market freedom?

Taxation issuesFinally, the new update from ESMA considers the inclusion of taxes in costs and charges disclosure. A distinction is made between transactional or service-based taxes related to the provision of the service (such as stamp duty, transaction taxes or VAT), and taxes on the income or revenue generated by the investment. While taxes related to the provision of the service should always be included in the disclosure – as they are explicitly listed in the MiFID II Delegated Regulation – it is up to the firm to decide whether to include, or not, in their disclosure the taxes on income or growth. Again, it is extremely difficult to achieve the right balance between market freedom (investment firms may choose the taxes to be disclosed), on the one hand, and harmonisation, on the other (the investor is disclosed the same cost items by different firms). This last example represents the most critical case of all the instances we have mentioned, as it pertains to a difficult and sensitive field, i.e. taxation.

It is possible that, in the near future, new Q&As by ESMA (and new requests for clarification by market operators) will provide further guidance and try to solve the issues which are still unclear. For the time being, it can be said that it is true that nothing is flawless, but all market stakeholders (authorities, financial intermediaries and advisors, investors) can work towards better regulation.

Editorial - February 2019

From a recent survey carried out by a famous global investment company, 46% of investors want to focus more on sustainability criteria for their portfolio choice and as a result 93% of fund managers cannot fail to take this into account in monitoring the company in which...

Editorial - December 2018

Jiří indelářDeputy Chairman FECIF

Unique Research: In the first two years of the FECIF Expertise initiative, what have we learned so far?

It has been two years, since FECIF started its Expertise initiative, a huge push for greater and better knowledge about the pan-European financial advice and intermediation sector. Since I have been honoured to chair the whole project among...

Editorial - October 2018

Daphne Foulkes, Board Member of FECIF, Chairperson of FEPI, and Partner at The Spectrum IFA Group

The Insurance Distribution Directive – Are you ready?

Since 2005, insurance intermediaries have operated under the rules of Directive (2002/92/EC) – the Insurance Mediation Directive (IMD). This has now been replaced by the EU Directive 2016/97 – the Insurance Distribution Directive (IDD)...

Editorial - June 2018

Jiří indelářDeputy Chairman FECIF

Did we become hostages to ever-increasing regulation?

According to most common sources, Stockholm syndrome is a type of psychological bond between hostage and their hijacker, when the former develops emotional ties to a person that beats, abuses or generally hurts him or her. Plainly sad, it is....

Editorial - April 2018

Time has come. On 19 March the amendment postponing the application date of directive 2016/97 (Insurance Distribution Directive - IDD) has been published in the Official Journal of the European Union. By 1 July Member States shall thus adopt and publish all the laws...

Editorial - February 2018

Daphne Foulkes, Partner, The Spectrum IFA Group and FECIF Board Member

Will your pension sustain you through retirement?

It is widely known that Europe’s ageing population is a problem for EU Member States. Quite simply, people are living longer and this impacts on the sustainability of State pension systems, referred to as...

Editorial - December 2017

David CharletFECIF & ANACOFI Chairman

Beyond robo-advisors, what might the future be for following generations?

The media seems to have only one word to say at present, when explaining our future: robots! Is it time for robo-advisors to replace our human members?If you take a look to some of our previous editorials, written by our Secretary General or some of our members, you will...

Editorial - October 2017

Dhruv Mehta,Chairman of the FOUNDATION OF INDEPENDENT FINANCIAL ADVISORS

Evolution and Regulatory Challenges – Lessons from India

The Foundation of Independent Financial Advisors (FIFA) is a body representing Advisors and Distributors of Mutual Funds in India, commonly known as Independent Financial Advisors (IFAs).During my recent meeting with FECIF I realised the common vision that both associations have for their members...

Editorial - August 2017

Jiří indelářMember of FECIF board of directors

How Vox Populi in Europe is (sometimes) being portrayed

Two weeks ago, my home city of Prague hosted an important event: the Joint ESAs’ Consumer Protection Day. This is an event that forms an important part of the regulation agenda and according to its organisers should “discuss issues related to consumer...

Editorial - June 2017

David CharletFECIF & ANACOFI Chairman

Europe as financial advisers see it

A long time ago, the European Union used to be a place for the production of coal and steel. Nowadays, it seems to be a global Union far more engaged than the US with our jobs and other matters. Consider: in the US no would find “passports” for...

Editorial - April 2017

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

Are you really ready for the future?

“The other day Ray was having a conversation with his 13 year old son and they ended up on a topic / issue that they needed more info on – his response was to “Google” it, his son chose to “YouTube” it. He realised at that point that they had different ways of looking for information, learning answers, and engaging with...

Editorial - February 2017

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

Transparency not commission is the real key for 2017 and beyond

A number of industry commentators keep stating that it’s now all about the end of commission on a global basis – but is it, really? We all know of the switch to fees in the UK, and also a small number of other locations around the world, but certain other jurisdictions have also been quoted as moving in that direction, only for regulators in...

Editorial - August 2016

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

Robo-advice financially unviable

The above was the main content of an article in a financial industry publication last month. This was based on a recent study, which found that UK robo-advisers are structured in such a way that they will lose money and “most will go bust before acquiring the sizeable assets under management needed to survive”.

Editorial - June 2016

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

Do consumers and advisers finally have the same goals?

Over the last year or two it has struck me that the increasing complexity of regulation is not only being seen in a negative light by the financial advisory and intermediary market – there are also growing concerns being expressed by consumers and, in particular, consumer groups, that this is having a negative impact on the public at large.

Editorial - April 2016

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

Interesting implications for the rest of Europe and beyond?

Last month saw the publication of the results for the UK’s Financial Advice and Market Review (FAMR). Whilst this might not have had much in the way of impact elsewhere across Europe, it perhaps should have done...

Editorial - February 2016

Jiří indelářMember of FECIF board of directors

The Brussels’ Circle of Overregulation

Even though the European Union was given a series of warnings regarding its effort to regulate anything and everything, it did not slow down. Despite proclamations about “changing the course” and “smart regulation”, from November to December...

Editorial - December 2015

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

Robo-advice: fact and fiction

I have lost count of the amount of articles about so-called robo-advice. It certainly is the “flavour of the month” and, if we believe all that we hear, will soon become the most important element in the delivery of financial services. I have some strong views on this….

Editorial - October 2015

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

Where now for commissions?

European regulators eventually “stood back from the brink” and within the agreed text of both MiFID 2 and the IDD (Insurance Distribution Directive) fell short of a complete commission ban – a ban that many thought might well happen as little as 12 months ago!...

Editorial - August 2015

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

The importance of effective representation

The compromise text for the Insurance Distribution Directive (IDD) was recently finalised and it was very pleasing to see that the vast majority of the proposals put forward by FECIF in the recent consultation period have been heeded.

Editorial - June 2015

Garry HeathDirector General Libertatem

Garry Heath announced the launch of Libertatem last month, a new trade association set up to represent all types of financial advisers based in the UK. His thoughts and plans are outlined below – they have great relevance to the rest of Europe.

Editorial - November 2018

Jiří indelářDeputy Chairman FECIF

Are the regulators finally showing common sense?

During FECIF´s prestigious conference last week in Brussels, I started seriously thinking that after all, European regulators might be gaining some common sense in their thinking. Quite a heretical thought for a classical liberal, is it not? But when I heard MEP Mr. Markus Ferber talking about the PRIIPs KID being wrong...

Editorial - September 2018

Daphne Foulkes, Board Member of FECIF, Chairperson of FEPI, and Partner at The Spectrum IFA Group

Next step for the PEPP saga

To date, many organisations have submitted detailed responses to the European Commission’s (EC) draft PEPP Regulation, which was published on 29th June 2017. There is strong consensus for the merit of the PEPP, both by the Trilogue participants (European Commission...

Editorial - July 2018

David CharletFECIF & ANACOFI Chairman

What sort of summer for intermediaries and Europe?

And now comes the time for holidays for most citizens in Europe, but also time for everyone in their offices to have a couple of quieter weeks, dedicating their work to more fundamental tasks like reviewing their processes or closing late files that...

Editorial - May 2018

Simon ColbocMember of Fecif Advisory Committee

The PEPP saga: what does it mean for advisors?

Anyone interested in the future of pensions should welcome the European initiative on the Pan European Personal Pension products (PEPP). Retirement provision is a major issue facing all European countries, hit by a combination of increasing...

Editorial - March 2018

Jiří indelářDeputy Chairman FECIF

How much do we pay for over-regulation?

Over-regulation of financial services in the European Union is a well-recognised fact, even among the bureaucracy in Brussels. The key feature of all those MiFIDs, IDDs or GDPRs, however, is not its devastating effect on the (small and medium-sized) businesses themselves, but its detrimental cost to the customer...

Editorial - January 2018

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

The moment I realised the value of (human) advice

This was (almost) the title of an article I recently read – and which reminded me of the fact that many advisers don’t always realise just how much positive impact they have on people’s lives. Or where that impact is most beneficially experienced by the client...

Editorial - November 2017

Vania FranceschelliFECIF Board Member and Regional Manager of the ANASF financial education programme

The social value of financial education

If I consider my personal experience as a financial advisor and, more generally, the provision of investment services to citizens, I can envisage two concepts for the future of our professional activity: investor protection and financial education. On the one hand, investor...

Editorial - September 2017

Daniel GuéguenHead of Strategy and Lobbying at PACT European Affairs

A journey through the EU Institutions

Every year before the start of the summer break, I treat myself to a journey through the EU Institutions. I say ‘treat’ because it is a real pleasure for me to speak freely and in full confidence with elected politicians, senior civil servants, head lobbyists and representatives from...

Editorial - July 2017

Product governance requirements will lead to greater quality of advice

Product governance requirements represent one of the most outstanding innovations of MiFID II, aiming at ensuring that firms which manufacture and distribute financial instruments act in the clients’ best interests during all the stages...

Editorial - May 2017

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

The value of advice – and the cost of being unadvised

There have been numerous studies over the years that have shown the value of good quality financial advice – not least, the fact that clients that receive it are, in general, significantly better off in retirement and much more financially protected during their life journey towards that point...

Editorial - March 2017

The final date for the transposition of MiFID II in each Member State – January 3rd 2018 – is fast approaching. Is it possible to see some initial insights into the industry, in order to foresee the impact of the Directive on business models? In particular...

Editorial - January 2017

Daniel GuéguenHead of Strategy and Lobbying at PACT European Affairs

2017: action, action, action

”My right flank is destroyed, my left flank is in retreat, everything is fine – attack!” Those were the words of General Foch in the darkest moments of World War One. We are there once again. Sink or act – that is the choice we have.

Editorial - November 2016

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

Playing your Trump card

Well, for those of us surprised by the Brexit vote - and there were plenty in the City of London that is for sure – the US election creates a whole new perspective with regards to astonishment, and on a much wider spectrum. I don’t know what it says about Hillary Clinton and her campaign – well, on reflection, I probably do – but the fact that Trump won, allied to the UK’s EU...

Editorial - September 2016

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

“The reports of my death have been greatly exaggerated”

This famous quote was a statement made by Mark Twain on hearing that he had been mistakenly announced dead. Although it is apparently a slight misquote, the meaning remains very much in line with what the great writer intended. It also came to my mind the other day when I was once again thinking about so-called “robo-advice” and...

Editorial - May 2016

Rebecca MurphyDirector of Sales & Marketing at PraemiumRe-engaging the investor

Re-engaging the investor

It’s rough sailing right now for investors and savers alike! Volatile markets and low interest rates are the norm, and investors are bombarded with information about products and services without understanding how any of it relates to them...

Editorial - March 2016

David DentonMember of FECIF board of directors

You can run, but you can’t hide

The Organization of Economic Cooperation and Development’s (OECD) Common Reporting Standards (CRS) - also known as Automatic Exchange of Information - is gathering pace post FATCA. For decades, developed economies have wrestled with the notion that wealth overseas, whilst not illegal...

Editorial - November 2015

Paul StanfieldChief Executive at FEIFA / FECIF Secretary General

Pension provision - is this the real “gap”?

The “advice gap” has received considerable coverage in the personal finance pages and trade press for some time now, across the UK in particular but it is also a growing concern across Europe and beyond. I wonder, however, if the focus should really be on the “pension’s gap”...

Editorial - September 2015

Vania FranceschelliMember of the Board of FECIF / Member of the Executive Committee of ANASF (Head of Foreign Affairs)

In July FECIF sent its contribution to the ESMA Consultation Paper on the Draft guidelines for the assessment of staff knowledge and competence under MiFID II. This Consultation Paper is of outmost importance for all financial advisors in Europe, as it provides the basis for the definition of the qualification and...

Editorial - May 2015

Johannes MuschikChairman of FECIF, Chairman of AFPA

New Chairman takes office

Back to my desk after our Annual General Meeting where I have been elected as Chairman for the period 2015/2016. The AGM was also an opportunity to exchange views on a number of hot topics concerning our industry...

Editorial - December 2014

Graham ReidManaging Director at Classic Financial Solutions CVBA

The true worth of an adviser

A few years ago one of our clients suffered a nervous breakdown. After early retirement he had continued working as a consultant from a small office at home, from where he also managed the family finances, something in which ...

Editorial - July 2014

David CHARLETANACOFI

For my first editorial as President of FECIF, I would like to thank every member of the Board, the General Assembly and the Staff.I would also express a special thought for Daniel Nicolaes, one of the best representatives of our profession in Europe, who disappeared a few months ago.